Will Lee Sang-jik’s Eastar Jet to fly again… “Significant sale negotiations in progress”

Input 2020.12.28 16:00

A mid-sized company seeks to acquire Eastar Jet

Eastar Jet is negotiating a sale with a Korean mid-sized company. Eastar Jet plans to normalize management through resale. Eastar Jet is in a’shutdown’ state for nearly a year due to the collapse of a merger and acquisition with Jeju Air in July following the Corona 19 direct hit. However, it is expected to be a burden on the acquirer that it has to take on various risks surrounding debts of 200 billion won and independent lawmaker Lee Sang-ji.

According to the airline industry on the 28th, Eastar Jet’s management held a meeting with executives and staff members on the 24th to share the process of M&A. At the meeting at the time, Eastar Jet said that it was negotiating a sale with a medium-sized company and that the company’s decision was ahead. An industry insider said, “The company that is trying to acquire Eastar Jet is known as a Honam-based company.” In response, the Hoban Construction side drew a line saying, “It is not true at all.”

In particular, it is reported that the company made an intention to take over directly to Eastar Jet, not to the sales manager. It is said that it was not included in the list of companies previously discussed through the sales manager. Last September, CEO Choi Jong-gu of Eastar Jet said in a statement that “there is a discussion on resale with about eight companies that have announced their intention to take over”, but only the negotiations proceeded and the specific stage was not reached.

However, the management explained that the sale negotiations are different from before. A high-ranking official of Eastar Jet said, “It has not been decided yet,” but that “significant negotiations are in progress.” According to the industry, Eastar Jet plans to increase the possibility of rehabilitation by signing an acquisition contract, transfusion of funds, and filing for court administration. It intends to reduce the burden on the acquirer by canceling more than half of its debt worth 200 billion won.

Even when Eastar Jet pushed for resale in September, it was looking for a buyer to support liquidity before applying for corporate rehabilitation procedures. This is because the rehabilitation plan to be submitted to the court must include a funding plan for the new consignee in order to enter the rehabilitation process. If the mergers and acquisitions are promoted before the rehabilitation plan submitted to the court is approved, the reimbursement funding is much more effective. As for the acquired company, the burden is also low as debts are frozen or canceled during the rehabilitation process.

The acquired company is expected to weigh Eastar Jet’s surviving value and various risks. Even though it is now shut down, Eastar Jet’s transportation rights, slots (right to use the airport), aircraft, and personnel are considered worth selling. On the other hand, unpaid wages of 170 billion won, unpaid wages of 25 billion won, and labor-management conflict remain a risk.

It is not known whether Eastar Jet will be able to make profits immediately even if it receives a reissuance of the canceled operation certificate (AOC). Domestic low-cost airlines (LCCs) are also facing a deficit in the aftermath of Corona 19. The International Air Transport Association (IATA) predicted that only by 2024, passenger demand will recover to pre-Corona 19 levels. In particular, competition with’Mega LCC’, which will be created through the integration of Korean Air and Asiana Airlines, is also expected to be tough.

The political risks surrounding Congressman Lee Sang-jik, the founder of Eastar Jet, are also a huge burden. Regardless of the ruling and opposition parties, Lee Sang-jik is in charge of the mass dismissal of Eastar Jet and the suspicion of an expedient gift. Congressman Lee said, “I will dedicate all of my family’s shares to the company,” and voluntarily left the company, but various suspicions have not subsided. In addition to the Eastar Jet issue, Congressman Lee is being tried for violating the Public Officials Election Act.

Meanwhile, Eastar Jet’s pilots union is planning to accuse the executives, including Lee Su-ji, who was Lee’s daughter and a director of Eastar Jet, on charges of aberration early next month. It is said that the management has inflicted enormous damage to the company by suspending operations and restructuring during the merger and acquisition process with Jeju Air. Park Lee-sam, chairman of the pilots union, said, “Even now, layoffs must be withdrawn.”